DIY Mortgage Acceleration

Do-it-yourselfers who are weary of yet another trip to the home improvement store may like this DIY project. It has the possibilities of increasing home equity just as quickly as a bath remodel or new deck.

You may have already built your own amortization schedule using a guide I posted earlier. And, you may have been figuring out how to accelerate your mortgage payoff by entering amounts in the monthly payment column that are higher than the standard payment. Just to make DIY mortgage acceleration really easy, I’ve created three schedules in one file:

Original Amortization Schedule

$100-a-month Accelerated Amortization Schedule (for disciplined DIYers who have committed to paying an extra $100 per month beginning with the very first payment)

Real-life Accelerated Amortization Schedule (with semi-random extra-payment amounts based on financial life events such as 1) having extra $600 per month for 2 years between car loans from year 5 to year 7; 2) using $300 of a yearly tax refund 3) applying year-end bonuses, ranging from $100 to $2,100).

Here are the results of paying according to the Original, $100-a-month Accelerated, and Real-Life Accelerated Amortization Schedules:

Original (Use “edit,” “go to,” “ORIGINAL”)

Number of Years for Payoff: 30 years

Total Interest Paid: $231,676.38

Total Payments Made: $431,676.38

$100-a-month Accelerated (Use “edit,” “go to,” “ACC”)

Number of Years for Payoff: 24 years, 7 months

Total Interest Paid: $182,537.97

Total Payments Made: $383,234.81 (payments will be slightly less as last payment will not be a full payment)

Real-Life Accelerated (Use “edit,” “go to,” “Random”)

Number of Years for Payoff: 21 years

Total Interest Paid: $152,555.51

Total Payments Made:$353,173.46 (payments will be slightly less but I didn’t want to change the flow of the amortization schedule)

You can download the file and enter information from your own life: your mortgage amount, your term, and your interest rate. Then, have fun figuring out how fast you can accelerate your mortgage payoff. If you decide to accelerate, make sure that your mortgage servicing company knows that the extra amounts you are paying each month are to reduce the principal.

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Guest #3

Per this analysis, by investing $100 per month in my house, I can net approximately $48,500 in the space of 24 years 7 months.

What would $100 per month in an indexed fund return over that same period?

No, I don't think paying off a 6% loan is the best place to invest your money. If you invested in a fund that matched the S&P over the past 25 years (approximately 10% return), you should have over $125,000 rather than $48,500. There are some tax implications that I am not considering though: home loan interest is deductible; capital gains that pass through mutual funds are taxable making ETF funds more attractive but you can get index funds in both I would think; or you could have put the money in an IRA with no tax implications (for a while). The best part about investing is that you have liquidity (money to take a vacation or help you through a period of unemployment) rather than having to sell your house or taking out a home equity loan to access that money.

You can use the Future Value function in Excel to figure out the future value of a stream of payments. Here's the formula I used to answer the question =FV(10%/12,295,100,0,0) or 10% interest divided by the number of months in a year, the number of months in 24 years, 7 months, the dollar payment amount, the value of your investment now (0), and the payment is made at the end of the month (Excel places this value at 0)

There are some pay-off-your-mortgage-fast products out there now and I am planning on covering all the nuances to those programs in future articles and then discuss why paying off early isn't necessarily a great idea.

I am really glad you put in the postscript. I have seen a lot of thes pay off your mortgage faster ideas, and to me, at the end of the day, hey all smell like the idea of having more taxes withheld from your paycheck so you can get more next April. It feels good in April, but it doesn't make much financial sense.

This is what i was going to write.
The pay-off-a-little-more-each-month fallacy has been around for a long time. The deal is that the numbers are big, so they are really impressive.

Yes. It builds equity faster. (But it's just converting your cash from a flexible form of equity into a less flexible form.)
Yes. You pay less interest over time. (But you lose opportunity to invest).
Yes, you pay off your house sooner. (How many of us will live in our house for 20+ years though?)

The right way to look at this is to consider the alternative uses of the extra money you would be putting into the equity.

For example, a 6% loan has an after tax 4% rate. Instead of putting the money into your house, why not put it into a SP500 index fund? It will get you 8% over time (5.33% after taxes). So by putting $1000 into your house, you lose $13.33 each year. Put it into the IRA that you haven't been funding and it looks even more attractive, because it is tax-deferred.

Alternatively, maybe ou take that round the world trip that you have always wanted to do, or invest in a good personal trainer to enhance your health. You can't put a value on those, but in any case, the pay off your mortgage faster idea is only for people who do not otherwise have the discipline to save in other ways.

It's kind of like the people who advocate extra withholding from their paycheck so they get more back in April.

Guest #6

I think we all know the fallacy of getting anywhere near the 8% return from the stock market others are suggesting. Even taking the low from the Dow Jones post 9/11/01 to the high of Oct 2007, the stock market only gained 25%, never mind the 40% drop in the last year and counting. Not paying off a debt to use spare cash elsewhere has never made much sense, ever.

Mark burnam #7

A guy i know said said you can save a ton of money on your mortgage by paying it weekly or 1/4 of normal monthly payment vs just one payment per month -- how much would that save you over time?
assuming same $ 200,000 30 yrs 6%
how about on 15 yr?

Here's another interest-saving tip that a lot of people don't know about: some banks will let you make your mortgage payment in two installments per month instead of one. We've been doing this since we bought our house in 2001 and will end up paying off our 15 year mortgage in just 12 years.

I find myself at an interesting juncture of my life. I'm 24 years old, and after 18 years as a professional student, it's finally time to begin my actual career.

The problem is, my 4 years of private undergraduate and 2 years of graduate study have racked up quite a debt. $92,000 to be exact.

I'm planning on trying to consolidate all of my loans to lock in the lowest interest rate possible, as some of the loans are variable interest by nature. So I'm probably looking at an average interest rate of 7 or 8 percent.

Is it smarter for me to choose a faster repayment schedule? Or to use the extra money for investments, savings, personal growth, etc.?

Thanks in advance for any responses. And I completely understand if this is outside of everyone's expertise. Thanks again.

Overall, the concepts are similar but much depends on your interest rate; you can certainly use the amortization schedules and plug in your numbers.

Here are the main differences between the mortgage loan and the consolidation loan: 1) the interest on the consolidation loan would most likely not be tax-deductible (so you have less incentive to hang on to that loan); 2) the higher your loan rate, the more advantageous it is to pay it off early as there is less difference between what you can earn in the stock market and the rate you are paying. At 6%, it doesn't make as much sense to pay off the mortgage loan early; at 8%, it starts getting more reasonable. Having savings, investments, money to have fun (to me) is always a good idea.

I graduated a while ago so I don't know a lot (right now) about student loans; but there may be some features to those loans that you would want to keep (rather than consolidating) (that is, can you defer the payments without adding interest until you find a job?). Variable rates are not necessarily bad in themselves but if the rate can rise substantially above the 7-8%, then locking down a rate makes sense.

Guest #13

The interest on a consolidated loan for multiple student loans is still tax deductible. And loan rates are usually lower than 7-8% on them(I currently pay 3.6%). And as the original poster stated that they have a debt of about 92k, I would suggest that they not try and pay it off too quickly for multiple reasons, 1) your only 24 and if you make you payments on time they go along way to building a good credit score, 2) you may want to look into putting money aside to place a down payment on a home in the near future, 3) it will allow you to place more money into a 401k.

Mike #14

Trent at The Simple Dollar has a post on this same topic. One thing he considers is placing what you would have paid extra to your mortgage into a savings account or ETF/Index fund, and letting it sit until the balance in that account is equal to your remaining mortgage. Then, pay it off!

This has several advantages: you get a better return on your money and so you accumulate faster than just paying off the principal; you still get the advantage of the full interest ductability; you have that money available to you in case of a dire emergency or to down pay on a new home if you sell early. The biggest con is that you are paying taxes on the interest/dividends you gain, and at some point in time that tax is actually higher than the benefit you get from deducting your interest.

I like this approach, though, and is likely the path I will take. Here's Trent's post .

I'm not saying you should accelerate your mortgage (per earlier discussion with Tony) just how to do it if you want to. A lot depends on your own situation and what your priorities are, how disciplined you are, risk tolerance, etc. But yes, it makes sense that you would invest the mortgage payment in an ETF (exchange-traded fund) to make 10% rather than pay off a mortgage loan with a 6% interest rate.

Brock #16

I am 22 and I bought a brand new house for $158,000 last May 07' my payment w/o taxes or insurance is 925.00 per month @ 30yrs @ 5.865% fixed intrest. My lawn business is growing very quick, so I now make an additional 300.00 payment per month toward the house, and and additional $200 toward my truck payment per month (which is normally 290@ 6% at 60 months). does everyone think paying these loans down is the smartest thing to do with my money? Or should I make normal payments, and bank away all that additional $500.oo per month?

"No, I don't think paying off a 6% loan is the best place to invest your money. If you invested in a fund that matched the S&P over the past 25 years (approximately 10% return), you should have over $125,000 rather than $48,500."

Shouldn't we also be considering the value of the payments after 24 years 7 months? Sure, you've saved 48500 in interest, but you also own the home outright and no longer have to spend 1200/mo on payments.

In the example unaccelerated scenario, you continue to pay 78000 over the course of the next 5 years 5 months. You have the 125k continuing to grow, of course.

Then again, we're assuming that the next 30 years is going to match the last. If you can count on the 10%, the investment scenario works out better, but if you factor in risk, the accelerated mortgage scenario doesn't seem like as bad an idea as it was presented.

I tend to think of 6% as a very low interest rate and if you can borrow at a low interest rate and invest and earn a higher one, then I think you should. (When I was just getting started with work, home buying, and investments in the early to mid 1980's, co-workers were getting home loans at 13.25%. My husband and I bought our first home with the help of a guy who was a first in our town: a mortgage loan broker. He snagged a 30-year fixed rate loan of 8.25%.)

You are guaranteed the 6% return and the 10% return is not guaranteed. I tend to be less risk averse than the average person or at least than many of the financial advisors that I've encountered and so would not necessarily speed through my mortgage at such a low rate.

If you have other investments, the guaranteed 6% will lower your overall risk while allowing you to enjoy some market returns (hopefully). If the $100 represents all of your extra cash and you have an either/or situation (either pay off the mortgage quickly or invest ), it would make sense to me to invest some of the money. You don't want to be a 50-year old (assuming you bought a home at 25 years and paid it off early) with no investment experience.

Guest #19

Folks - Julie's post is right on the money. Another point to consider is inflation... you will be paying the last portion of your mortgage in el cheapo today dollars.

With 6 percent interest, tax breaks, and given the length of this type of loan... it's really a no-brainer given a large enough investment horizon.

Just wanted to point out to anyone who chooses to do this that some lenders charge penalties (I've got a mortgage with CitiBank, against my will, and they do this) for payments made outside a certain time window in a month. Since I have mortgage payments draft directly from my bank account without writing a check, any additional (one-time) payment I make would be separate from my regular mortgage payment -- I would write a check. If that check gets to CitiBank after a certain day of the month (the 5th or 8th, I think) they'll charge me a service charge.

Of course, they've offered me the "opportunity" to make half-payments every two weeks -- resulting in 13 payments a year rather than 12 -- but the fee attached to that structure is ridiculous, too. They tell me I'll save in interest, but don't bother working in the cost of their fee to their calculations.

Thanks for mentioning that all mortgage lenders play by their own rules. You may not be thinking of making extra payments when you sign up for a loan; at least I don't think I did. My lender/servicing company has a place on the coupon book to indicate extra principal payments.

Mike #22

Just wanted to send a quick thank you to everyone who responded to my semi off-topic question about student loans. Everyone has been extremely helpful and I feel I have a better grip on my options.

For me, an acelerated loan repayment is an important component of a comprehensive debt management and wealth building plan. In our cash-based household, we max out our retirement accounts, pay-off any credit card debts the month they occur (we use them for big/emergency costs only), set aside funds for savings and investment, AND add 1/12 of a morgage payment each month toward principal. For us, an accelerated loan repayment plan for a home we love and may keep for 20+ years (who knows) works for us, even if it offers less reward than one might (might) obtain elsewhere. But the key here is that is only one of several approaches we use for managing debts and building assets.

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I tried to use the calculator listed in one of the comments above but it's Java based and it wasn't working on my computer. I did find another non-Java based mortgage calculator at - http://www.mortgage-loans.net - with the amortization schedule and increased payment options for any of you that had the same problems as I did. What a difference a few dollars makes!

If you are going to accelerate your mortgage pay down, don't pay anyone for the privilege of doing it. You don't need to buy any book, DVD, or software to do it. Just contact your mortgage company and find out what you need to do to send in extra principal payments. Then just send what ever you want, along with your regular mortgage payment. If you pay with automatic withdrawals from your checking account, you can probably have extra principal withdrawn, too. It's that easy.

If you want to do a bi-weekly mortgage, don't pay a $200 or $300 fee. Just do it yourself. Take your current monthly payment and divide it by 12. Send that amount in as an extra principal payment. Depending on your circumstances, you will pay the mortgage off between 5 and 10 years sooner.

The only reason I have tolerated commenters' product plugs is because I wrote my series of mortgage posts in response to those wishing to purchase accelerator products like these (mentioned by #25 and others), and it seems reasonable that I should allow vendors, writers, etc. to express their viewpoints.

Still, if you can download my spreadsheet, you can most likely figure out how to use it for nearly any mortgage with adjustments for your situation. If you still need help though. let me know so I can put together a spreadsheet for you, no charge.

I use the APlus accelerator and am very pleased. A small operation, but they have it dialed in! I understand that they just signed a marketing agreement that will take it nationally. Much more than an accelerator. Allows you to work with investment, multiple properties, adjust your budget on the fly, etc.

well I took a chance and went to www.SuperchargeYourMortgage.com and supercharge your mortgage works. I would recommend it to any one. I have seen and used free systems that work before... but this was real easy to use and loaded with useful info,and has easy to use calculator's great value.

If you are paying the same amount but in four installments rather than one, you really wouldn't be saving any money -- the bank will typically apply the payments and charge interest once per month.

If you had a simple interest mortgage (I've read about these but they are not standard mortgages), you could avoid some interest charges and could save money but it would depend on when the payments were applied each month by the bank.

Hi, I have an 80/20 loan, the 20 is a Home Equity Line of Credit and therefore the payment varies as the interest rate varies. My question to everyone here is this: Obviously, overpayment on the traditional 80 portion of the loan is not a bad idea, but what about the 20 portion? I generally overpay but don't seem to get anywhere, and since I'm not well versed in this are I'm not sure if it's a good idea at all. I've had the loan for almost 3 years now and the payoff amount is only slightly under the orginal amount. Thanks.

Brock, I would invest nearly all of the extra money -- your investments should really grow at a higher interest rate (overall, over time) and starting now will make a huge difference in the long run and financially, you will be better off. If you get in a jam, you can tap into your investments to pay off the loans (though holding some in cash will be helpful) -- that's from a pure calculation standpoint. There may be psychological value in paying off loans early -- for me that would be the truck loan; still you have a great interest rate and you are likely to get a higher return in the market.

i have a new 30 year loan . principal 60.00 a month .i can not use the tax deduction for interest .i have an extra 300.00 a month in income . with cd rates low the market likely to dive . plan on staying in house for 20 years . i started paying 60.00 to 100.00 a month extra on my principle .
i can change it if i need . i see nothing worth investing 100.00 a month in ,so for now i have been adding it to my priciple payments

We had a conventional 30 yr. new home loan with monthly payments on $150k. I believe it was around 6.5% rate. We refinanced it within a few months with a Federal credit union. We could only join the credit union via a referral (relative) and by opening up a savings and checking account. They will only do refinancing--not the original loans. The refinancing works by the credit union automatically taking weeky mortgage payments out of the checking acount we have with them and IMMEDIATELY applying them to the mortgage. The branch manager said that this is not a normal offering of financing institutions and that to her knowledge only SOME Federal credit unions will offer it, and they can offer it to their members mainly because they are non profit. I believe the refinanced portion was about $148,000 at 6.5% for 30 years, but as I understand it, using "reverse weekly compounding" (my terminology, not theirs) our "monthly" payments are less than with a conventional mortgage. After reading your foregoing comments, I am now wondering if this is actually what it happening, or am I just making extra "payments" of a sort. I am OK with it either way--the main reason I am asking is I was thinking of referring my son for membership in the same credit union. He has a recent $180,000 biweekly mortgage set up that according to him equates to a "13th" payment. Would the "weekly" method my credit union offers be a better deal for him? His current rate is 6.375% and my FCU rate is currently 6.5 to 6.75% on a 30 year loan. Lewis

If the credit union is immediately applying the payment to the balance, and your payments are based on the outstanding balance (principal), then it seems that this is a better deal than a traditional mortgage. What happens in other cases is that the payment is made by the borrower but only applied to the balance one time per month.

I could see the convenience (for all involved) of having a weekly payment rather than a monthly one if you are being paid ona weekly basis.

It would be useful, though, if the credit union could give you an amortization schedule so you could see how the money was being applied.

Lewis, I re-read your post and the question at the end, and have a couple of more items to mention. It is easier to accelerate your mortgage using the weekly method. In your son's case, the higher interest rate with the credit union would offset savings associated with the weekly method -- he should pay off his loan in 24 years (rather than 30) with a couple of months earlier with his biweekly payment.

Also, the weekly method (without extra payments) gives you a lower payment (each week should be $215.73) but the loan will be paid off in 30 years. If you paid 1/4 of the traditional monthly payment ($233.87 of $935.46), then you would pay off the loan earlier, at a little over 24 years.

If you have an 80/20 mortgage, pay down the mortgage that has the highest interest rate. Your Home Equity Line of Credit interest rate is probably below your regular mortgage interest rate right now, so you want to pay down the regular mortgage. While you may not "see" much difference, every little bit you put toward your debt helps. If you feel that you want to pay down the HELOC loan regardless of interest rate because it has the smaller balance, DON'T! Consider the interest rate when deciding which loan to pay down. If you stick to a regular payoff schedule, you will "see" your results faster.

I need help with your DIY Mortgage Acceleration spreadsheet. My current mortgage $337,995 at 6.25% 30 year fixed
Payment $2,646.34 I am trying to figure out how much I can save by sending an additonal $100 or $200 dollards towards the principal.

I am getting a monthly payment of 2081.09 but my number does not include property taxes or insurance. You can use this formula to replace "original payment": =PMT(c6/12,30*12,-c4,0,0) after you have entered your specific information. Then you can go to the $100 area and see the results: payoff in 26 years, 7 months; if you want to see the impact of $200 change all of column d to reflect an extra $200 rather than $100, and your results are 23 years, 10 months. Hope this helps!

All the research has been done, all the challenges made, all the articles written, and now THE award been given: There's ONLY ONE T R U E mortgage acceleration leader according to: Personal Real Estate Investor Magazine, True Wealth Magazine, Broker Banker Magazine, and now Ernst & Young’s most prestigious award, Entrepreneur of the year. Who am I talking about?
United First Financial and the Money Merge Account.
Get all the real facts about the most advanced mortgage acceleration system in the world.www.payoffyourhomenow.org

according to the Ernst & Young website, Ufirst is a finalist (one of 25) in the Utah region. The criteria are "sustainable financial growth, growth in the number of employees, risk taken by the entrepreneur, and the story behind the entrepreneur's success." Though it may have been considered, I do not see "value to the consumer" listed.

If any of your are skeptical I invite you to go towww.payoffyourhomenow.org and fill out a free analysis. We will never take any of your private personal information, NO ssn's, NO credit reports etc. Just put in your income, mortgage, and other creditor info accurately and I guarantee I will generate a report that will blow away any DIY mortgage acceleration by 1-2 years, or more. Please be sure to include a real email address so I can email your report. I'm happy to provide any of the articles I've mentioned. I'm happy to do a Go To Meeting/Webinar presentation to all takers to show how the Money Merge Account is the fastest way to complete financial freedom from all of your debt. Or simply watch the how it works video at www.payoffyourhomenow.org With our new version 4 you don't even have to be a homeowner. The Money Merge Account works with HELOC's, PLOC's (Personal Lines Of Credit), Credit Cards, and now a system for those who have poor credit and no way to get any line of credit at all. The Money Merge Account is so much more than an online software system. It's a coaching and support system with live telephone coaches available to you 6 days a week 16 hours a day. Again I challenge each and every one of you to go to www.payoffyourhomenow.org for free analysis and accept my invitation to attend a Go To Meeting to find out how it works.
James Stubbs

Did anyone mention that the program they are talking about is sold for $3,500 - for something you can do yourself? It is an interesting idea to use a Heloc to payoff your mortgage faster - but it doesn't mention the dangers involved of defaulting on a Heloc(losing your house!) - Also doesn't mention that you must have extra income a month to pay down the Heloc- Why can't someone just open a Heloc (if a bank will even do it now - good luck in this market) write a check to the mortgage and then pay down the Heloc on their own? Why do you need fancy software to track this - a spreadsheet or simple paper and pen would do the job. Seems that someone is making alot of money on the software. To learn more I would Put a search into Google for H.E.A.P and see what his sight says about these programs. I found it very intertesing read and also 3 of my clients were being pushed into paying $3500 - I was able to save them from this expense. This HEAP guy seems to know his stuff.
Also - we would almost always suggest to our clients to invest the money over paying off your house - but that is a personal decision about debt and risk.

This article was a precursor to my post on Speeding through your mortgage, which discusses the impact of the $3500 payment for software, etc. compared to the DIY approach. Feel free to tell your clients about it k3bour; also I am not necessarily endorsing the pay off the mortgage as quickly as possible approach rather than investing -- as hopefully the returns on investing will outweigh the interest rate on mortgage debt.

Many of you have questioned the effect of spending $3500 (which is never out of pocket) verses simply going with the DIY method. The effect is clear: You will leave tens of thousands of potential saved interest on the table and pay for years longer. Over the tens of thousands of MMA's sold and hundreds of thousand's of free analysis preformed, you will be paying 27 months longer and paying $15,000-$25,000 more in interest verses using the MMA package and coaching program. That was under version 3. Version 4, out this month is 20% more aggressive in your payoff. Not only that you can do an UNLIMITED number of properties, boats, motor coaches, airplanes or whatever else you want at the same time, and you own it for life. There's also an optimizer package with automatic bill pay and other features available. On top of all that you must remember that besides using a HELOC you can us any other type of line of credit, including a credit card. AND now you don't even have to have that. We have an optimizer package that works simply with a standard checking and savings account. You can even finance part of the subscription fee! For those who don't own a home and still need the advantage of a debt reduction & coaching program there's the MMA express for $1795. So the question becomes would you spend $3500 to save $25,000 and two years? Of course you would!

I'll issue the same challenge now that I've issued all along: go to http://www.payoffyourhomenow.org and enter your numbers for a free analysis. There's NO WAY any DIY program will ever beat the power of the MMA period.

So as not to mislead people I wish someone would address the difference between using a Heloc myself and paying off the mortgage and the $3,500 software method. I am not disagreeing with the method if you really want to pay off your mortgage (which is not always the best way to go) - just how does your software compare to the method of using a heloc yourself. When does the software program beat out the same method just using a Heloc from your bank?

This is a good question. I believe the biggest difference between using a mortgage accelerator software program and DIY Method is terms of accuracy. You are trying to optimize your mortgage payoff date, with the least amount of interest paid, and least amount of risk. I myself don't have the math skills to decide the optimal plan over time. How much should you transfer from your HELOC to your mortgage each month? When should you transfer the money?
The programs take the guess work out of the method.

I think the $3500 price is rather steep and recommend shopping around. Check out www.mortgageaccelerator101.com . There are over 9 different programs listed and a further explanation of mortgage acceleration.

Meggo #53

I get so confused when people say it is not a good idea to pay off your mortgage. Why not? Save a few dollars at tax time each year is that the reasoning? I don't know but anyway I believe the United First and the others that teach to pay down/off your mortgage are great! They understand that if you have discretionary income that it is much much easier to get rid of your mortgage without doing anything so special. Once you learn the system though, I do agree it can't be that hard to accomplish on your own and pocket your $3500 bucks. Pimp that money yourself and work the system once you totally understand and map out how it really works. I personally would not pay my mortgage completely off but I don't quite understand why it's a terrible idea. Help me.

The reasoning behind not paying off your mortgage is this: you need to save money for emergencies and also for investments (which in prior years, often earned much more than the 5-6% interest rate on the home loan). It's great to have the home paid for, but in the time between now and being mortgage free you might need the cash to pay your regular payment, buy food, invest in your retirement, etc., if you lose your job, for example.

Sorry to submit a second comment but the link was not functional. Here is a website that you can go to compare the various mortgage accelerator software programs on the web. They range from $300 to $3500.

Early in the ownership of my current home I regularly made an additional $250.00 per month payment towards my mortgage. I did this for seven years on a 30 year term loan and then refinanced the loan to lower interest payments about eight years ago. The results were that my mortgage balance before the refinance would go down monthly. I could actually see the difference it made by comparing it to a amortization schedule for the loan. Having the amortization schedule which broke down the payments on a month by month basis was motivating to see. There were many times when business was tight were we considered cutting back and skipping the additional mortgage payments. But after seeing how much your mortgage reduces by making these payents you get really focused on looking at cutting in other areas. I continued to make additional payments with my new loan increasing it to $500 until two years ago when my business really started to tank.

I saw this research repot on mortgage acceleration in youbonus.org. This is the best one. I highly recommend this to everyone. Right now, HELOC rate is low if you already have one. You can save about $50 per month. The truth always hurts, it only save you that much.

Using the example above and addding $100 a month to your mortgage gives you a pay off of about 24 years. Using the Money Merge Account from United First Financial using the same identical example and presuming an equal amount of disposable income, say $200 a month. And let's add in another $38,700 in consumer debt. So a total of $238,700 in mortgage and conusmer debt using the Money Merge Account System you would pay off your house and ALL of your other debt in 15.3 years saving a total of $125,878 in interest. Sure the program costs $3500, but would you spend $3500 to save $125,878? No brainer in my book! I did buy it! In my case I'm going to pay off my $478,000 in mortgage and consumer debt in 10.2 years saving $302,000 in interest!

To everybody who thinks the best way to do this is DIY let me simply point out that it hasn't exactly worked out all that well historically. Otherwise a heck of a lot more than 4-5% of Americans would own their homes free and clear. The simple fact is that Americans need a system of coaching to help them get it done. The TV show Biggest Looser is a perfect example of how a carefully laid out coaching program can be a great sucess. The Money Merge Account is "the perfect looser" for all of your debts and tens, hundreds of thousands of dollars in interest. On top of all of that it's 100% guaranteed! For the 1st year there's a no hassel guarantee: You can request a refund for any reason. Beyond that it's guaranteed in writting to perform as promised or you get your money back. As the final bonus, now anyone can have the Money Merge Account Program for just $250 down and $75 per month. You can even use the "Express" version if you don't own a home. Do your homework, get the facts. U1st has been featured on the covers of 5 of the nations leading Mortgage, Real Estate, Investment, & Financial magazines. Given Personal Real Estate Investor Magazine's Editor's choice award. Awarded by Ernst & Young, and Endoresed by many others.

Great article. I think there are a lot of folks out there who aren't educated on mortgage acceleration. Even a slight tweak on how they pay their mortgage each month can create a drastic savings on interest paid.

A few points to consider with regards to mortgage acceleration, including using a HELOC to help pay it down even faster.

First, considering the debt burden our govt. is under, I've been hearing rumblings of the possible elimination of the mortgage interest deduction. Mind you, this is not very likely now at least, but there is still the possibility that it could, one day, be eliminated or reduced in some capacity. I heard Mark Calabria with the CATO Institute mention this possibility on CNBC today (Aug. 27, 2009). See the video here (the mortgage deduction was brought up around minute 1:50):

Second, one should first set aside money for retirement &/or investment from one's paycheck BEFORE these acceleration methods are employed. Then, and ONLY IF ONE'S BUDGET ALLOWS, should one use an acceleration method. I've heard that one should set aside 10% of one's income for investment/savings/retirement. But after you've saved 10% of your income why not use the rest of your surplus cash to pay down your mortgage?

Third, if one wants to spend money on other things such as a personal trainer or a vacation, one can do so. This simply means that if one spends money on well-deserved "pleasures" then less is applied to one's mortgage that month. No big deal. Mortgage acceleration isn't about denying one's self the luxury of living a full life.

Fourth, if one pays down their mortgage and then chooses to move, then one has that much more equity with which to purchase a new home. Or, one has that much more equity they could choose to pull from to apply as a down-payment on a rental property or a second home. By paying down one's mortgage, one has that much more available to them for other options/investments in life sooner. If one doesn't choose to pay down their mortgage faster then one could still buy a rental or second home (or other investment), but it may take longer or require more creative ways to come up with the money.

Fifth, if one cannot live within a budget, well, then that person probably shouldn't risk using a mortgage acceleration method that employs a HELOC or some other form of credit. This type of person should build a 3- to 6-month savings cushion BEFORE using any credit for a mortgage acceleration budget. This accomplishes two things, 1) it helps the person discipline him or herself with a budget, and 2) provides a 3- to 6-month living expenses cushion should things get out-of-hand.

In the end, though, if one cannot live within a budget and they cannot build a 3- to 6-month cushion then they won't be able to benefit from a mortgage acceleration budget. And that is unfortunate. And worse, they may end up losing their home.

I believe I could add more to this conversation but I won't. In closing I think it is important for people to realize that they don't have to spend some $3000 to $4000, or even just $400 on software to "do" a mortgage acceleration program. One can learn everything they need to know about how to use a HELOC to affect a mortgage acceleration budget on their own by researching this subject on the Internet (or, possibly, using Julie Rains' guide or spreadsheet here - my disclosure: I've not looked at her stuff closely, but my gut feeling is that it is worthwhile). It really is as simple as using SOME of a HELOC account to make a payment on one's mortgage, then using all of one's paycheck to pay down the borrowed amount from the HELOC. The key is finding the right balance of how much of the HELOC should be borrowed compared to how much one can pay that HELOC back down to near zero. In short, BUDGETING how much to borrow vs. how much can be repayed in each month.

There are less expensive mortgage acceleration programs that put budgeting on steroids and can be used for homes, student loans, etc. BreadMap.com is very easy to set up and use --- it only takes us 5 minutes per month and we're saving a ton of money in interest. We don't care if the mortgage is tax deductible; we want to pay off all of our loans in full for peace of mind and to protect our financial future. In a short couple of months we can already see the light at the end of the tunnel!

You don't really have to increase your monthly mortgage payment in order to pay off your house early. The only adjustment you have to make is through your scheduled monthly payments. First of all, interest rates are calculated daily and NOT monthly like all banks want us to believe. For example, if your mortgage payment is due on the 30th of every month, if you pay your monthly mortgage payment on the 20th of every month, you're saving 10 days of daily interest. You don't need HELOC or whatever software to payoff your house early. All you need is just adjustment on how early you are paying your monthly mortgage. Remember, interest rate are calculated DAILY and NOT monthly.

You'll need to examine your mortgage documents to determine whether paying early (but not extra) will really reduce overall interest accrued. In a traditional mortgage, interest is calculated on a monthly basis and you won't save money if you pay early; using a simple interest mortgage, interest is calculated more frequently, so you can save money in the long-term if you pay early. For a more in-depth discussion and illustrations, see these posts by the Mortgage Professor:

The mortgage acceleration methods are awesome!You can really pay off your home a lot faster than the traditional way. I write about it too on my site. My site is regarding the mortgage crisis we are still under and answers to questions.

I have a 6% fixed with 22 years remaining. My HELOC is now at 3%. I figured I can pay off my fixed in 1year and 8 months using weekly payments using my HELOC and my regular monthly from regular income. The HELOC will then be paid off in about 6 years just using your spreedsheet.
Thanks.

Wow, thank you so much, Julie. I just stumbled upon your excel spreadsheets - they were very useful for me to analyze my options. I'm already making extra monthly principal payments and contemplating a refinance to a lower interest rate (and then continuing my same accelerated monthly payments with more of the amount going to principal). None of the "cookbook" website calculators could handle that type of comparison, but with some adjustments, your spreadsheet helped me quantify the difference the refi would make for me in terms of both time and money savings. THANK YOU!!
- Ray

Love the spreadsheet that you laid out. Wow what a difference a couple of hundred dollars can make in a 30 year mortgage. Even one hundred dollars makes a substantial difference. Thank you for the spreadsheet and for the wonderful article that you wrote.

Thanks Bev, glad you enjoyed the article and found the spreadsheet useful.

Jerry #73

I’m looking for a good debt elimination program that works. I bought the John Commutta get out of debt program and it is not working for me. I guess I just wasted more money. Does anyone have any suggestions? Does Mortgage acceleration really work?

I have researched many programs out there and the best that I found is a program called debt eliminator plus. I believe it sold for $3500 at one time but I did not have to pay for it. Im not sure if it’s a limited time thing or some sort of beta test but it is working really well for me. Software and videos. I believe you can still get it for nothing. The last time I checked the website address was www.debteliminatorplus.com

Tobi-Velicia #75

I am doing this with my mortgage even though I refinanced. I had 26 years left on my old mortgage with a 6% interest rate. When I was in the refinancing process, my bank told me that I "couldn't" get a new loan term of 20 years; they would only give me 25 years. Since I had already been paying a mortgage for the past 4 years, I would still be making 29 years in payments. Well, I went ahead and did the new loan with a term of 25 years, with 4% interest. But I pay the EXACT same amount every month that I was paying under my old mortgage (which is about $135 in additional principle on the new loan). Therefore, my mortgage will be paid off in 20 years instead of 25 years, and just 24 years in payments.

Your plan is a great one! I have heard from a few folks that there are prepayment penalties or other glitches involved in paying extra principal each month but I never encountered problems (though I did have to specify that extra amounts should be applied to the principal). The lesson is that if you can't get the exact loan term you want, pay an amount that fully amortizes the loan in your time frame (aka ends up paying off the loan when you want to pay it off).

Advising people to pay off mortgages early isn't in their financial interest. Because I want to retire early, I'm trying to optimize my finances. It makes significantly more sense financially to NOT pay off early. Because of the advantage of investing the extra money instead, and the fact that inflation is working FOR us during a long mortgage. I've blogged about the $$ numbers.

Thanks for your comment. Note that I am not advising folks to pay off a mortgage early but showing how accelerating the payoff can work. When I wrote this piece years ago, some companies were charging folks a few thousand dollars to do what I explained for free! There are many factors in deciding to do an early mortgage payoff including personal financial goals and your mortgage interest rate.

Tobi-Velicia #79

My mortgage is being paid off "early" because I wanted a 20-year term for my refinance, but the bank wouldn't give me a loan term lower than 25 years. So I'm paying it as a 'DIY 20-year' loan. The monthly payments I am making on this refinanced loan is exactly the same as on the old loan with the higher interest rate. Therefore I am not paying out any additional money, and there is no prepayment penalty for my mortgage loan. I will have great piece of mind when this mortgage is paid off. Besides, I will be retirement age in 20 years and I don't want to worry about paying a mortgage.

With the FHA mortgage loan calculator you can determine monthly payments with different loan types, and interest rates. You may be capable to afford more (or less) depending on your down payment and/or the purchase price.